IRS impersonator scams feel real if you don’t understand the real IRS

Taxpayers can avoid phone scams by knowing how the IRS really works

By: Jim Buttonow / March 18, 2016

The phone rings.

Caller ID indicates that the call is from Washington, D.C. The taxpayer answers. The caller claims to be an IRS Collection agent and demands payment on an unpaid balance the taxpayer owes. The caller sounds official, and threatens criminal sanctions if the taxpayer doesn’t pay the balance immediately.

The caller then says that if the taxpayer doesn’t pay, the local police will show up at his house and he will face jail time for the offense. The taxpayer is initially suspicious and hangs up. A couple minutes later, he gets a local call from a person claiming to be a law enforcement officer, demanding payment.

Now, the taxpayer has further proof that the caller is legitimate. Out of fear and misunderstanding, the taxpayer pays the requested sum -- and has been swindled by an IRS impersonator.

IRS scams are prevalent

This type of IRS phone scam has become widespread in recent months, and has been covered extensively in media reports. In January 2016, the Treasury Inspector General for Tax Administration (TIGTA) reported that, since 2013, more than 5,000 people have been scammed out of $26.5 million by IRS impersonators.

According to TIGTA, the callers are aggressive, relentless and ruthless. They’re also convincing, because many have taxpayers’ personal information, including the last four digits of Social Security Numbers.

Taxpayers fall prey to this scam because they’re afraid, and they’re trying to do the right thing. According to IRS Oversight Board studies, fear of an audit is one of the most compelling drivers of taxpayer voluntary compliance. No one wants IRS scrutiny – and if taxpayers get scrutiny – they want it to go away. Combine that with the aggressive and threatening nature of the scam calls, and many people will spend thousands to remove the pain of IRS scrutiny immediately, even if it isn’t real.

Another factor contributing to the problem is that most taxpayers don’t know how the IRS enforces tax laws. Many taxpayers think the IRS enforces the law with local agents and quick, draconian methods. But that is far from the truth. The IRS conducts most audits and collection activity by mail – using notices, not people.

A basic understanding of how the IRS works is the best way to avoid reacting to fraudulent emails and phone calls by IRS impersonators who prey on taxpayers’ ignorance of the system. Here are six facts about the IRS that will give taxpayers confidence to hang up if they get a phone call purporting to be the IRS:

Fact 1:If you’re being accused of tax fraud, you’d already know about it, because you’d already be under audit.

Tax fraud is rare, and the IRS pursues it only in egregious cases – mainly related to tax protestors and narcotics-related charges. The simple fact is, IRS data shows that most taxpayers are compliant. Impersonators prey on taxpayers who want to do the right thing.

Fact 2: If you’re getting a call or email from the IRS, be suspicious.

The IRS rarely calls on first contact and will send taxpayers a letter if there are any issues. The IRS doesn’t email enforcement communications, and will never take credit card information by phone or email. IRS compliance actions do not happen suddenly. The IRS has to follow a due process, with a prescribed series of mailed notices, to make taxpayers aware of an issue before a phone call would ever happen.

Fact 3:The IRS will never get local law enforcement involved in a federal tax issue.

If taxpayers owe, the IRS usually collects the balance from afar. If the IRS does assign an employee to a taxpayer’s case, that employee will be a federal revenue agent or officer carrying maroon encased credentials – not local police.

Fact 4:If the caller is threatening to seize your home, business, car, or any other physical asset, the threat is bogus.

Taxpayers would be well-aware of any consequences of nonpayment months in advance – and the IRS doesn’t seize physical assets from taxpayers unless it absolutely has to. In fact, in 2015, the IRS seized assets from only 426 taxpayers nationwide.

Fact 5:The IRS isn’t urgent.

That’s why there are years-long limits to how much time the IRS has to pursue an issue, called the statute of limitations. For example, if a taxpayer owes a balance, the IRS has 10 years to try to collect it. The IRS has three years to audit a tax return. Even the most urgent IRS letters allow 15 days for response. Moral of the story: The IRS isn’t going to call taxpayers demanding immediate payment.

Fact 6:You have appeal rights.

Even if a taxpayer has an IRS problem, the taxpayer would have many avenues to appeal the issue before being subject to enforcement measures. That includes opportunities to work with the IRS to address the issue, or arrange a payment plan if the he or she owed money.

No taxpayer wants to receive a threatening call from the IRS. However, if taxpayers are armed with the confidence of knowing how the IRS works, they’ll spot the scam immediately and avoid the fraud.

Bottom line: If the “IRS” calls, tell the caller to send a notice and then hang up.

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Jim Buttonow

Jim, CPA, CITP, leads H&R Block efforts to help clients with tax problems. Jim is former chairperson of the IRS Electronic Tax Administration Advisory Committee, and has more than 28 years of experience in IRS practice and procedure, including 19 years at the IRS.